Overcoming ESG Hurdles: From Data to Impact

Executive summary:

  • Careful data management and having a formal impact measurement framework in place are essential to preventing greenwashing and ensuring consistent impact delivery.
  • Best practices are required for asset classes such as private markets that lag behind in terms of adoption and responsible environmental, social and governance (ESG) practices.
  • Investing in a way that actively contributes to a more sustainable future requires a deeper level of scrutiny and a more careful application of ESG data than adopting a simple de-risking approach.
  • Managing sustainable risk requires a consistent and efficient process for identifying risks that pose financial materiality, striking a balance between the expected risk with expected reward.

In pursuit of financial and sustainable objectives for our clients, Russell Investments has encountered several challenges stemming from the inherent limitations of ESG data.

These limitations include poor data coverage, lack of comparability among data providers, weak correlations to actual corporate performance, and the challenges of using backward looking data to invest with foresight. We have learned that harnessing ESG data in support of investment results requires creativity and agility, but also beneficial practices and high-value solutions that are developed through persistence.

Below we describe four case studies highlighting the use of ESG data and practices in our investment process.